Can You Buy A Foreclosed Property With A VA Loan?
Ashley Kilroy4-minute read
June 14, 2023
Sure, there’s something appealing to a shiny new house. But there are plenty of future home buyers interested in not only formerly owned homes but foreclosed ones as well.
Foreclosed homes may not sound appealing at first, but they come with advantages. For example, they usually sell below the typical price you expect, so you save money. That can be a valuable opportunity for veterans looking to get the most bang for their buck.
A VA loan from the Department of Veterans Affairs (VA) also comes with its own set of perks, which most veterans and their families can take advantage of.
But can you buy foreclosed real estate with a VA loan? Here’s what you need to know to utilize both these cost-effective options.
Can You Buy A Foreclosure With A VA Loan?
The short answer is yes, it is possible to use a VA home loan to purchase a foreclosed home. However, the property must meet the VA’s minimum property requirements to qualify for a loan. Below are the rules you need to know.
VA Rules Can Complicate Foreclosed Home Buying
When you apply for a VA home loan, your application must meet the VA’s requirements to qualify for a mortgage. These requirements are designed to protect you as the borrower, your lender, loan servicer and the VA itself.
Since the VA guarantees these loans, they take responsibility for the loan debt if you can’t pay your lender back. So, no harm comes to the mortgage provider. Likewise, the VA also creates rules that are meant to protect you as the home buyer.
These rules are called the VA minimum property requirements (MPRs). The VA created and outlined minimum property requirements for every property to abide by before loan approval to protect the interests of veterans and their families.
The main goal of the MPRs is to ensure veterans and their loved ones move into a property that is safe, sanitary and structurally sound. Here are the key requirements to know:
- The property is residential.
- The roof has no major defects.
- Major mechanical systems (such as heating, electrical and plumbing) are in good working order.
- Broken windows must be fixed or replaced.
- No defective lead-based paint. Homes built before 1978 may be assumed to have lead-based paints so any peeling paint must be scraped and repainted.
- The property is a sufficient size for basic living needs.
- The property is free of pests like termites, as well as fungus and dry rot.
- There is safe and sanitary sewage disposal.
- There is access to all-weather public or private streets.
- The property has accessible and properly vented attics/crawl spaces.
While these requirements complicate the process, they save you money in the long run. Imagine purchasing a home with a faulty deck or staircase. Not only do you face repair costs, but you could be responsible for any potential medical bills those shoddy structures cause if someone gets injured because of them. Every property is different, though. Some homes may not seem like they will fit into the VA’s requirements, but you can always check.
Lenders will learn of any deficiencies with a property thanks to appraisal guidelines. So, if something falls outside the rules, you just need to look elsewhere.
The VA may insist on certain MPRs depending on the area or state the home is in. You can find information concerning the MPRs for properties depending on their location using the VA’s website. You also visit the outlined MPR government document for further specifics.
See What You Qualify For
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The Advantages Of A VA Home Loan
VA loans aren’t just easier to qualify for than loans provided under alternate programs. They also offer a significant source of financial aid to veterans and service members. They’re highly versatile and can be used to finance home upgrades and renovations, purchase foreclosed properties or cash out the equity that you possess in your home.
VA loans also use a different formula when calculating applicant’s debt-to-income (DTI) ratio, which can help qualifying borrowers afford more home as well.
So, a VA loan offers advantages compared to a traditional lender. But the above isn’t all. Additional benefits include:
- Lower interest rates compared to a conventional mortgage
- Less consequences for a low credit score or minimal down payment
- The ability to forgo a down payment
- No primary mortgage insurance (PMI)
- Low closing costs (about 3% – %)
- A streamlined interest rate reduction program
- No prepayment penalties
Whether you’re buying a foreclosure or not, the benefits of using a VA loan to finance your home purchase are undeniable. You can get started by applying for a mortgage approval with Rocket Mortgage®.
Consider This Before Buying A Foreclosed Property With A VA Loan
While there are advantages for those buying a property with a VA loan, there are also some pitfalls. You may meet a few hurdles while buying a foreclosed property.
For example, you don’t have to worry about updates or maintenance right away with a new home. But a foreclosed home will likely come with several features that need to be fixed. Oftentimes, if homeowners know their home will go into foreclosure, they may not address issues. So, problems may stack up with a foreclosed property.
From this, it’s important to note that many properties are sold as is. Whatever issues they had before the lender took possession will stay with them. If you don’t have the funds to address potentially high-cost repairs, it may not be a worthwhile investment for you.
Because a distressed property requires more approvals and paperwork, your closing process may be difficult. You might face several complications or lulls in the process. Thus, it may take longer for you to close on a foreclosed home than a traditionally sold property.
These hurdles apply regardless of whether you use a VA loan or any other type of loan. So, no matter your financing options, consider your choice carefully before purchasing a home. A foreclosed property comes with its benefits, but it may not be the right move for you.
The Bottom Line
VA loans may make buying a foreclosed home tricky. You must ensure that your future home meets the list of requirements for loan approval. While that complicates things, it ensures you and your loved ones move into a safe and secure home. It’s vital you evaluate any potential foreclosed property for its benefits and drawbacks before purchasing.
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